ESG Standard Writers Jet Set, Spend Big, and Accomplish Little

What is the International Sustainability Standards Board doing?

It was launched to great fanfare in 2021 as part of the global fight against climate change. Its goal is to produce a single, worldwide set of environmental, social and governance reporting standards so investors can compare companies’ performance internationally.

But it hasn’t issued any new standards for well over a year. It’s only covered one of the many areas of ESG. It’s gobbling money at an unsustainable rate—on, among other things, three headquarters. Its 14 board members make as much as $925,000 a year to jet around and try to persuade countries to use its rules.

The ISSB says it’s concentrating on helping countries adopt its first two standards. They were issued in June 2023, covering climate and general sustainability reporting.

Each country must decide whether to adopt them. None have yet, and the ISSB lists just 30 that might—the US not among them. That contrasts with 140 countries using accounting rules from its sister body, the International Accounting Standards Board.

Just as seriously, several places that the ISSB claims are on course to use its rules won’t. The European Union and China are covering more topics in a different way. Other places like Japan are writing their own rules.

With different places writing different rules, the IASB will miss its most basic brief. Companies will still have to produce separate sustainability reports for the different countries they work in, and for multinationals, that’s an expensive pain.

The ISSB received heavyweight support from the likes of the G7 and UN at its launch. Investors have long demanded more consistent sustainability information from companies to judge their long-term prospects in the face of climate and other threats. If firms’ sustainability performance can be compared and scrutinized, they’ll be under pressure to behave better, the thinking goes.

Trouble is, the ISSB is only looking at half the problem: how sustainability issues could hit companies’ share prices.

The EU has decided to emphasize the other half: making companies report the damage they cause to the world, called impact reporting. That’s central to attempts to cut pollution. China, among other places, is looking to follow Europe’s lead here, although it does say its rules will be compatible with the ISSB’s.

Like the ISSB’s, the EU’s rules take effect this year. Over the next few years they’ll become mandatory for big companies, including foreign firms active in the region, in the same way the EU’s data-privacy rules took hold.

Europe has published 12 standards covering areas such as pollution and marine resources as well as climate, in comparison to the sustainability board’s two. And it has covered off both impact and investor reporting—meaning there is no need for European companies to report separately for the ISSB, according to Brussels.

The ISSB disagrees and wants European companies to make separate reports under its rules. But in reality, the ISSB has been overtaken. It accepts its future rules must be interoperable with Europe’s, meaning it will have little leeway over their content.

It’s already downgraded its aims in standards setting. In April it halved the number of new areas to research over the next two years to two: biodiversity and workforce skills. No one knows when these new standards will take effect, let alone the host of other areas covered by the EU.

This doesn’t make the ISSB irrelevant, but it will play a costly second fiddle to wider reporting initiatives. In 2023, ISSB spending more than doubled to $33 million, more than twice as much as the far more productive accounting board, which makes do with just one headquarters in London.

It relies heavily on funding from its three headquarters countries— Germany, Canada and China—and that runs out in a couple of years. Michel Madelain, managing director of the ISSB’s parent body the IFRS Foundation, said recently that the spiraling spending will lead to losses for the foundation this year. That, he said, is ”unsustainable” with no long-term funding in place.

The foundation is discussing why the ISSB uses so many buildings, which is a start. To survive, though, the ISSB needs more than dumping some real estate. It has to become a lot quicker, cheaper and more relevant.